I’ve owned Aviva (LSE: AV) shares for a little while, watching them fall, but never seeing them as a sell. I know there are uncertainties at Aviva. But as a long-term investor, I say value in shares eventually comes out. And I’ve always thought the Aviva share price would bottom out and start on a long-term recovery.
That might finally be on the cards, as the Aviva share price has jumped by a third since its low point in 2020. It’s just a shame it took a further slump in the Covid-19 crash first, and that the shares are still down 34% so far this year.
I haven’t really minded the share price fall that much, because I’ve been receiving regular dividends. The yield on my purchase price isn’t as good as for those buying after later share price falls. But it’s still a pretty desirable one. Well, it was, but with the PRA demanding the suspension of financial sector dividends, that’s gone. But I’m sure it will be back.
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So what now? I think the Aviva share price is looking increasingly attractive, for a number of reasons. Aviva recovered well after the financial crisis, but investors had started to lose their confidence. Earnings and dividends were becoming a little erratic, when investors wanted consistency and growth. But above all else, observers saw Aviva as losing its direction.
Lack of direction
I’d seen something similar earlier with Vodafone, which for a number of years looked like a rag-bag collection of disparate global businesses. And while Vodafone was slowly getting its focus back together, Aviva looked like it was losing its. And the Aviva share price was suffering. But I see that changing, and it’s all about management.
Maurice Tulloch unexpectedly stood down from the CEO role in July. He was quickly replaced by Amanda Blanc, whose rise has been rapid. She joined the board as a non-executive director only as recently as January 2020, so that’s a quick step up. But her record is impressive, with spells in top jobs at Zurich Insurance Group and AXA UK. And she served as chair of the Association of British Insurers, and president of the Chartered Insurance Institute.
If I thought Amanda Blanc would continue the conservative style of management that the City so disliked, I wouldn’t be so enthusiastic. But I expect something positive, and she could be just what the company needs to give it a boost.
Aviva share price
On traditional valuation measures, the Aviva share price looks too low to me. Analysts are expecting earnings per share to dip by around 25% this year. But even with that, we’re still looking at a forward price-to-earnings of only six. I do think a lot of City forecasts are a bit too optimistic right now. But with these Aviva predictions, there’s plenty of room for safety.
Analysts expect the dividend to come back, with a yield of around 10% on the current Aviva share price. Cover would come in at 1.6 times, and that seems adequate. I rate Aviva as a buy for both dividends and for a return to long-term share price growth. Perfect for an ISA.
